The SEC filed charges against a New Jersey-based broker for allegedly misusing his access to customers' brokerage accounts to enrich himself and two of his family members at the expense of his customers. The broker allegedly netted at least $700,000 in illicit trading profits due to the deceptive scheme. The SEC detected the suspicious trading trends by using data analytics.
According to the SEC Complaint filed in the U.S. District Court of the District of Massachusetts, the broker made trades through an allocation account without clarifying whether the trades were for his personal securities trading account or for his customers. The defendant then allegedly "cherry-picked" profitable trades and transferred them to his personal account or an account held by his sister-in-law and her husband. Further, the defendant closed out the position immediately for winning trades but held the position for a longer period of time for losing trades in customer accounts. The SEC claims that in so doing, the defendant misappropriated profits that belonged to his customer accounts.
The SEC is seeking disgorgement of the ill-gotten gains, pre-judgment interest, permanent injunction and the imposition of a monetary penalty.
In a parallel proceeding, the DOJ announced criminal charges against the defendant for the same alleged misconduct.
Commentary / Kyle DeYoung
The SEC has talked a lot over the past few years about using data analytics to identify wrongdoing. This is an example of that approach leading to concrete results. The industry can expect more enforcement cases generated by data analysis as the SEC continues to develop its expertise in this area.
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